As US Representative John F. Tierney and Richard R. Tisei gear up for their first debate on Thursday in a bruising congressional campaign, each is facing potentially embarrassing questions about his personal tax returns.
Tisei, the former Republican minority leader of the state Senate, paid no federal income taxes in 2006 or 2008, after reporting losses from his Lynnfield real estate firm and two rental properties, according to 10 years of tax returns he provided at the request of the Globe.
Tierney, meanwhile, has resisted disclosing any of his returns despite a public pledge to do so, numerous requests by the Globe, and new questions about whether he and his wife should have reported to the IRS at least some portion of the $200,000 that federal prosecutors say his wife received from a brother’s illegal gambling business, from 2003 to 2010.
Late Tuesday afternoon, after being pressed for weeks and being told the story would be published the next day, an attorney for Tierney offered to show the congressman’s tax returns to the newspaper in his office on Thursday morning — too late for the Globe to publish a newspaper story before the first scheduled debate Thursday afternoon. He did not promise to give the Globe copies of the returns so that they could be analyzed by outside experts.
In addition, as of Tuesday afternoon, the Tierney campaign had provided no evidence that the congressman has ever publicly released his taxes, despite a statement from a spokeswoman to the contrary and Tierney’s own claim during a July 3 news conference.
“We’ve released our tax returns in every election,” Tierney said then. “We’ll release the same ones we release all the time.”
Tierney, a Salem Democrat seeking his ninth term representing the Sixth Congressional District, has said the money his wife received from her brother, Robert Eremian, was a gift and therefore exempt both from federal taxation and requirements that he publicly disclose the source of the money.
Meanwhile, he has enlisted well-known libel attorney Howard M. Cooper in an effort to dissuade the Globe from publishing a story exploring whether 2011 court testimony by Tierney’s wife, Patrice, indicates the money was taxable income, not a gift. Four independent tax experts, including two willing to be quoted by name, told the Globe that the money from her brother seemed more like income because she said she performed services in exchange for the funds. As income, it would be subject to taxes.
Tierney’s congressional and campaign staffs refused to discuss issues related to Tierney’s taxes for almost three weeks and initially declined to release his returns, saying the Globe had not shown “good faith,” in the words of Tierney’s campaign manager.
“We do not take your request for tax returns as made seriously or in good faith, and we will certainly not provide you with material for you to further misconstrue in an effort to publish a false story,” Tierney campaign manager Matt Robison said in a statement to the Globe. “If you are interested in writing a different story about some other aspect of the returns which does not involve a false and misleading allegation, then Congressman Tierney will of course reconsider providing his returns to you.”
In addition, an attorney representing Patrice Tierney said issues related to the money from her brother had been investigated by the IRS previously and the agency brought no charges, though the probe predated Patrice Tierney’s 2011 court testimony.
The combative campaign to represent the Sixth District, which stretches from Lynn to the New Hampshire border and includes the cities of Salem and Peabody, is one of the most competitive in the country, featuring a barrage of harsh negative ads.
Recently, a super PAC with ties to the Republican House leadership unleashed a television ad claiming that Tierney “knew everything” about the illegal, Antigua-based gambling enterprise run by his brother-in-law Robert Eremian. Tierney has said he is guilty only of standing by his wife, who spent a month in federal prison in 2011 after pleading guilty to “willful blindness” while managing a multimillion dollar bank account for her brother and helping him file false tax returns.
On the airwaves, Tierney has responded with TV ads tying Tisei to the Tea Party movement and branding him an extremist, even though Tisei, who is openly gay, has cultivated a moderate image. A WBUR poll conducted earlier this month suggests Tierney leads by seven points, but 22 percent of the likely voters polled remain undecided, leaving room for either candidate to win.
The Globe asked for the tax returns of both candidates after Tierney made his public pledge to make his taxes available, but only Tisei complied, providing a decade worth of returns that portray him as a sometimes-struggling businessman with a moderate income.
Tisei’s returns show he has depended almost entirely on his state Senate salary and his independent real estate brokerage, Northrup Associates, which he owns with his business and life partner, Bernard F. Starr.
In 2006, he reported earning $66,000, most of which came from his state Senate salary. But he also reported losses of more than $58,000 associated with his real estate firm, along with additional losses of $15,500 stemming from two rental properties.
The next year, in 2007, Tisei’s income exceeded $156,000, thanks largely to more than $70,000 in profits from his share of the real estate brokerage. But in 2008, after the economy collapsed, Tisei was back on his heels after his share of losses associated with the real estate firm approached $100,000.
“There were a lot of sleepless nights,” Tisei said. “We didn’t know how bad it was going to be or how long it was going to last.”
In 2010, Tisei gave up his state Senate seat and waged an unsuccessful campaign for lieutenant governor. Last year, the first in more than two decades that he went without a state legislator’s salary, he reported earning less than $48,000, most of which came from his real estate business.
“I’m middle class, for sure,” he said.
Anthony Russo, a senior tax director and certified public accountant with the firm BDO United States, reviewed Tisei’s returns for the Globe and said they are typical of recent returns filed by small business owners in Massachusetts, particularly those working in the troubled real estate market.
“They’re pure vanilla,” he said of Tisei’s returns.
Although Tierney has not yet released his taxes, his congressional disclosures suggest he is the wealthier of the two candidates. In addition to a congressional salary of $174,000, he reported that his wife earned $8,000 as an administrative assistant at the Hawthorne Hotel in Salem.
He also reported that he is a part owner of a Salem rental property assessed at more than $500,000, and that he and his wife own a Salem condominium assessed at just under $500,000. He also disclosed ownership of various investments.
But he has faced more serious questions about the $223,000 that federal prosecutors say Patrice Tierney received through a joint bank account she held with her brother Robert Eremian, who has been charged with more than 400 counts of conspiracy and illegal gambling and remains a fugitive in Antigua. Both Patrice and John Tierney have described the money as a gift from a relative that did not have to be disclosed to the public or reported to the IRS.
The controversy heated up last month, when officials at three open government groups said the House Ethics Committee should investigate Tierney because he did not report the source of the money on his congressional public disclosure form, which is intended to alert voters to potential conflicts of interest.
Now, tax specialists contacted by the Globe are saying that at least a portion of the money Patrice Tierney received could be considered income that should have been reported to the IRS on the couple’s joint tax returns, although a tax attorney who reviewed the matter for the Tierney campaign said that the IRS has already looked at the issue without charging her.
The tax specialists consulted by the Globe said that, while it is not possible for them to say how the IRS would decide an issue of this sort, the fact that Patrice Tierney said under oath that she received the money in recognition for work she did helping her brother could lead the IRS to conclude that the money was taxable income, not a gift.
“If the money was received for services rendered, the argument that it’s a gift doesn’t hold up,” said Richard P. Mandel, an associate professor of law at Babson College who is also a practicing tax attorney at Bowditch & Dewey.
“It would be difficult to win the argument that the money was a gift based on the fact that she admitted working,” said James P. Angelini, director of the Master of Science Taxation program at Suffolk University. “She said, ‘I did a lot of work.’ That’s not a gift.”
D. Sean McMahon, the tax attorney who reviewed the matter for the Tierney campaign, said in a letter to the Globe that any suggestion that the money Patrice Tierney received was income “is without merit based upon the facts.”
McMahon, a former IRS attorney, also said “the publication of such a claim would be highly reckless” because it “would suggest publicly both civil and criminal wrongdoing.”
McMahon said the money Patrice received should be considered a gift because the money was given to her by a relative and because there was no known negotiation of how much she would be paid.
But the tax specialists consulted by the Globe said that the most important question is whether the money was paid for services rendered — like a job — or out of pure generosity — like a gift. And Patrice Tierney’s testimony in the 2011 trial of her brother Daniel, now serving a prison term for his role in the Antigua-based gambling operation, suggests that she worked for the money.
Under questioning by Assistant US Attorney Fred M. Wyshak, Jr., Patrice Tierney said, “I received gifts from my brother for helping him.” When Wyshak asked if she received a lot of money, she replied, “Yes, I did a lot of work.” And when Wyshak asked her about monthly checks that she wrote to her mother, which her mother then signed back over to her, Patrice Tierney said, “It was a way for her to compensate me for all things I did for her.”
The IRS generally relies on a 52-year-old Supreme Court case in trying to decide whether money is taxable income or a tax-free gift. In that case, known as Commissioner v. Duberstein, the court said that in order to be considered a gift, the money or property received must have been given out of a “detached and disinterested generosity,” which is to say, “out of affection, respect, admiration, charity or like impulses.”
“That’s just another way of saying you can’t be getting something in return for something,” Mandel said. “It has to be purely for love or affection and that doesn’t seem to fit the facts here.”
But Donald K. Stern, a former US attorney who represented Patrice Tierney during her testimony at Daniel Eremian’s trial, issued a statement saying that the IRS had already reviewed the issue during the long criminal investigation that led to her imprisonment and did not find that any portion of the $223,000 was income.
Further, Stern said the federal judge presiding at Patrice Tierney’s sentencing hearing stated in open court that Patrice “is not a tax evader.”
Stern declined to be interviewed for this story but was referring in his statement to remarks by US District Judge William G. Young, who appeared to be summarizing a plea bargain rather than offering his informed judgment. “She’s not a tax evader. This is only willful blindness, aiding and abetting,” Young said. In plea bargains, prosecutors often drop more serious charges in the interest of obtaining an expedited guilty plea, and the dropped charges never become public.
Stern, in his statement to the Globe, also said, “not only are there no further investigations, but there is no basis for such action.” But Patrice Tierney’s testimony came more than a year after her plea agreement and may have raised new issues.
A spokeswoman for US Attorney Carmen M. Ortiz would not comment on whether the IRS might review the Tierneys’ tax filings.
The tax experts consulted by the Globe said that, even if the IRS were to consider a portion of the $200,000 that Patrice Tierney received through Robert Eremian’s gambling business as income, it would not be possible to calculate the amount of back taxes owed — if any — or any possible penalties and interest, without seeing the couple’s tax returns.
Michael Rezendes can be reached at email@example.com. Follow him on Twitter @RezGlobe.
Correction: Because of a reporting error, an earlier version of this story incorrectly characterized a statement by the attorney for Tierney’s wife. The attorney said that the IRS had determined that no portion of the money she received from her brother should be considered income.